Inflation drops more than expected in March, falling to 2.4% due to decline in oil prices

U.S. inflation reached 2.4% for the 12 months ending in March, a larger-than-expected decline driven primarily by falling oil prices, the Labor Department reported on Thursday.

In February, the consumer price index (CPI) was 2.8%.

The data comes amid the tariff war initiated by President Donald Trump, which led to a market plunge. However, on Wednesday, the president abruptly shifted course with regard to all countries except China, announcing a 90-day pause in the implementation of tariffs.

The figure released on Thursday reflects data from before the dramatic market fluctuations triggered by the tariffs.

In the month-to-month comparison, inflation eased by 0.1% from February, aided by a 6.3% drop in gasoline prices, which contributed to a 2.4% decline in the energy index. In contrast, the food index rose by 0.4% in March.

A sigh of relief for the Fed

The data is likely to be welcomed by Donald Trump's administration, which has been under pressure to explain how consumers will benefit from his tariff plans—plans that many economists and Fed officials argue will drive inflation and slow growth.

However, since the figures only cover the period leading up to the imposition of tariffs, they do not reflect the immediate or long-term effects of these levies.

As of Wednesday, tariffs are set at a baseline of 10% for all countries except China, where they exceed 100%. Additional tariffs are applied to specific products.

"What a difference 24 hours makes," wrote Chris Zaccarelli, chief investment officer at Northlight Asset Management, in a note to clients.

"Not only has the immediate tariff threat been averted for three months, but also the looming threat of inflation has been averted for now," he said.

He added that the data is "welcome news for the Fed, which would prefer to cut interest rates if there is significant damage to the economy from rising tariffs, but would otherwise be reluctant to cut (interest) rates in the face of an inflationary threat."

Core inflation, which excludes volatile prices such as food and energy, rose by 0.1% in March compared to the previous month, and increased by 2.8% over the past 12 months.

This was "the smallest annual rise since March 2021," the Labor Department noted. It was also below the median estimates of economists surveyed by Dow Jones Newswires and The Wall Street Journal.

The Fed is grappling with inflation, which remains above its 2% annual target according to its preferred price measure, the PCE.

At the same time, the unemployment rate remains near historic lows, giving the U.S. central bank no urgency to lower interest rates until price pressures ease further—unless Trump's tariffs lead to a sharp contraction in growth, which could impact employment.

Financial markets currently estimate an 80% chance that the Fed will take no action at its next interest rate meeting in May, according to data from the CME Group.